Insights 
VT 
Stephen Miran of the Federal Reserve Board has stated that the underlying inflation pressures in the US are linked to migrant population effects, which he believes can be addressed through immigration controls. He estimates the neutral rate of interest, or r-star, at 0.5%, which is lower than the current common models that range between 1% and 0.8%.
In the first half of the year, economic growth was slower than expected, yet Miran is optimistic with the reduction of economic uncertainties. He believes that the Federal Reserve’s policy should be forward-looking and that restrictive monetary policy poses risks if not adjusted appropriately.
Inflation Outlook
Miran is more positive about the inflation outlook, expecting rent inflation to moderate, which could ease overall price pressures. He argues that current economic data requires nuanced interpretation and does not see tariffs as a material inflation driver yet.
Miran maintains that there is no need to alter the Fed’s inflation targets and believes that private data cannot fully replace government data. Bond market reactions support a push to cut rates aggressively, yet he advises against actively targeting long-term rates under normal circumstances.
Given the comments today from Federal Reserve Governor Miran, we see a clear signal that the central bank may be much closer to cutting rates than the market expects. His personal estimate for the neutral rate at 0.5% suggests current policy is highly restrictive and must be adjusted soon to avoid damaging the economy. This implies a more aggressive cutting cycle could begin before the end of the year.
Market Expectations
This dovish stance is finding support in the latest economic figures we’ve seen. The September CPI report showed headline inflation cooling to 2.8%, while last week’s jobs report indicated a softening labor market, with the unemployment rate ticking up to 4.1%. These data points give credibility to the view that inflation is under control, clearing the path for the Fed to pivot.
Therefore, we should be positioning for lower interest rates in the coming weeks. The probability of a rate cut at the November meeting has already jumped from 15% to over 40% in the fed funds futures market following these remarks. We see value in buying December 2025 and March 2026 SOFR futures contracts to capitalize on this shift in expectations.
A pivot to rate cuts would also be a significant tailwind for equities, especially for growth-oriented sectors sensitive to interest rates. The prospect of cheaper capital should boost valuations for technology and consumer discretionary stocks. We are considering buying near-term call options on the Nasdaq 100 index to position for a potential year-end rally.
This outlook also has strong implications for the US Dollar, which has been supported by high relative interest rates for over a year. A dovish Fed will likely pressure the dollar, and we expect the DXY index to break below the key 103.00 support level soon. This makes long positions in EUR/USD and GBP/USD attractive, potentially through options to limit risk.
We remember how markets reacted in late 2023 when the Fed first signaled an end to its hiking cycle, sparking a powerful multi-month rally in stocks and bonds. The current environment feels similar, where a single official’s comments can solidify a major policy shift. The key is to position ahead of the crowd before this view becomes the consensus.
